With ongoing research by many commentators showing that contractor’s confidence in HMRC’s IR35 CEST (Check Employment Status Test) tool is low, questions are now turning to whether the tool is now even fit for purpose. This is especially prevalent with the governments supposed determination to implement these changes to the private sector.
The CEST tool is used by contractors’ and Public Sector Authorities to accurately assess and determine an engagement’s IR35 status. Provided the information inputted accurately depicts the working conditions, then HMRC will stand by the outcome determined by the tool.
The CEST tool has always been seen by many as something of a shambles however more and more evidence now seems to be coming to light to strongly support the argument that it is just not sufficient to be used to make such a key decision. NHS Trusts in particular have shown a reliance on the tool mainly because of a distinct lack of education and understanding of IR35 by instigating blanket bans on Limited Companies. One particular example that has been used is of a Locum Consultant providing evidence of eight different assessments from legal experts and professional contract reviews showing the engagement as being outside IR35, yet the NHS Trust insisting the engagement was inside IR35 after evaluating the engagement themselves using the CEST tool.
The tool has already previously been deemed fundamentally flawed as Mutuality of Obligation (MOO), a key test of whether an employment relationship exists and whether IR35 should apply, is not part of the evaluation process when using the tool.
Further examples of the CEST tool being not fit for purpose are highlighted in recent Freedom of Information requests made to HMRC. The results provided from HMRC show an admission that when the tool was tested prior to roll-out no evidence was documented or retained showing any accuracy of the tool.
Research now shows that just 10% of contractors are using the CEST tool. Almost fatally research also shows that recruitment agencies and end clients, who will be even more key in these determinations once these changes are implemented in the private sector, are also disregarding the tool.
The fallout from all of this is rather than HMRC’s view that these changes have increased compliance, the changes are leading to an increase in skills shortages due to contractors’ leaving the public sector and a growing use of unscrupulous providers by those contractors who want to mitigate the financial loss suffered by an inside assessment. Furthermore, there will almost inevitably be an increase in tribunals and a reduction in the availability of a flexible workforce.
IR35 is a complex piece of tax legislation and it is clear further undertakings are needed to ensure that it works in a fair and accurate manner for all parties concerned.
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